This article is based the research of Kelley Assistant Professor of Marketing, Xian Gu, as well as Ziaoxi Zhang and P.K. Kannan.
Introduction
The latest trend in influencer marketing is livestream commerce—a form of product sales that combines an influencer’s live video streaming and entertainment with e-commerce. So-called “social shopping” has grown exponentially in recent years with livestream commerce now prominent on TikTok, Facebook, YouTube, and Amazon.
To illustrate the point, TikTok entered the e-commerce industry in early 2018, and by 2020, transactions had reached $77 billion in gross merchandise value.
If you haven’t been “retailtained,” here’s how it works:
As an influencer demonstrates and promotes a product, the viewer considers information in real-time interactions with the influencer and other viewers, and the process ultimately culminates in a purchase, all in one livestream setting.
Influencers are uniquely able to intertwine successful product endorsements into their personal narratives because their content appears less commercial and more trustworthy than content generated by marketers. Retailers and brands have sought to leverage these influencers in their marketing and sales strategies, but many questions remain about the effectiveness of and strategy for livestream influencer campaigns.
How should retailers develop influencer strategies to maximize product sales? Should they lean on a single influencer with a large following or multiple smaller influencers? Should marketing managers leverage a mix of large and small influencers? How do these decisions impact conversions?
Statement of Problem
The authors wanted to better understand the relative sales effectiveness of big and small influencers in livestreaming. Specifically, should marketing managers employ one type of influencer exclusively or a combination of both types? How should retailers change their influencer strategies in the presence of price discounts and copromoted products and categories? And what’s driving the answers to these questions?
Data Sources
For their study, the authors obtained a unique and rich data set from TikTok in China, a social media app for livestreaming and short video sharing. The data set covers more than 100,000 products live-streamed on TikTok between January 28 and June 28, 2021, including all products that were among the top 2,000 daily best sellers for at least one day.
The authors gathered detailed information about all livestreams and influencers related to these products, including cost data for 82 big influencers and 236 small influencers, and transformed the data into a panel at the product and date levels, generating a total of 1.8 million observations.
The data contain many instances of diverse influencer strategies (big-influencer-only, small-influencer-only, and combined strategies), each of which was adopted by a significant portion of retailers.
Analytic Techniques
The authors developed a fixed-effects panel model to evaluate how firms’ influencer strategies impact their product sales in livestream commerce. Their analysis addressed the endogeneity issues using instrumental variables as well as product-specific fixed effects. They also controlled for a variety of campaign and product characteristics that may also impact live sales, like the number of products promoted in the livestreams, the category focus of the livestreams, and price discounts.
Additionally, they conducted a preregistered online experiment to investigate the underlying mechanisms behind the empirical findings. A total of 404 participants from Credamo who frequently watch livestreams in China completed the experiment and received financial compensation for their participation. Participants were randomly assigned to one of four conditions in a 2 (a big vs. small fictional influencer promoting a product in a livestream) by 2 (no awareness vs. awareness of other influencers promoting the same product) between-participant design.
Additionally, based on the cost data available, the authors conducted a profit-budget scenario analysis to approximate the optimal profit under the three influencer strategies.
Results
Big influencers can attract a much larger audience for livestreams, whereas small influencers are more effective at increasing the audience’s conversion rates. However, a big influencer can generate significantly more sales than a small influencer as the big influencer’s reach more than compensates for the lower conversion rate.
While many marketers believe that big and small influencers can complement each other and boost overall sales, the authors found that the two types of influencers may actually weaken each other’s sales performance when a combined strategy is adopted for livestreams This is due to the fact that consumers’ trust in big influencers significantly decrease when consumers learn that other influencers are promoting the same product , which the authors confirmed in their experiment. Interestingly, this decrease does not occur for small influencers.
Further analysis also revealed that livestream sales generated by a big influencer are adversely affected by small influencers who promoted the same product previously, but not the other way around. In addition, they identified differences between big and small influencers in terms of how product and campaign characteristics moderate their sales effectiveness. Notably, compared with small influencers, big influencers benefit more from promoting a limited number of products, focusing on a single product category, and offering deep discounts in livestreams.
When taking the hiring costs of influencers into consideration, the combined strategy and the big-influencer-only strategy perform similarly and beat the small-influencer-only strategy in terms of profits. However, when the costs of hiring big influencers are high and the costs of hiring small influencers are low, the combined strategy outperforms the big-influencer-only strategy but gets dominated by the small-influencer-only strategy.
Business Implications
The study findings offer insights into the sales effectiveness of big and small influencers and general guidelines for designing their mix.
The authors highlight a potential pitfall that could reduce the effectiveness of livestream commerce and influencer marketing: while many marketers believe that combining big and small influencers can generate the highest returns, the authors show that combining the two types of influencers may weaken each other’s effectiveness in livestream commerce and the combined strategy may not always maximize marketing return on investment. While a combined strategy may still be effective at maximizing sales, the additional sales may come at a higher marketing cost.
Armed with the authors’ analysis, a firm can determine the optimal strategy given a specific budget. If they know the costs of hiring big and small influencers, they can leverage the analysis as the basis to identify the optimal strategy.
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